Blackstone faces $5bn of withdrawal requests at second property vehicle

Blackstone is facing more than $5bn in redemption requests from a second property vehicle, adding to pressure on the world’s largest alternative asset manager as investors try to pull their cash.

Blackstone Property Partners, a real estate vehicle for big institutions such as pension funds and endowments, is facing redemption requests equal to 7 per cent of its $73bn net asset value, the New York group said on an earnings call on Thursday.

BPP is a vehicle that gives access to dozens of funds Blackstone uses to invest in property. The withdrawal requests have not been fulfilled as the parts of BPP from which investors want to pull cash require that new money comes in before Blackstone has to meet redemptions.

That stands in contrast to Blackstone Real Estate Income Trust, or Breit, which was hit by withdrawals last year by wealthy individual investors concerned about the long-term health of the property market and a need to raise short-term cash.

In December, Blackstone limited investor redemptions from Breit after the withdrawals breached 2 per cent of assets in a single month, or 5 per cent in a quarter — giving the group the right to gate the $69bn fund.

Jonathan Gray, president of Blackstone, on Thursday warned that the still-gated Breit was facing an “uplift” in withdrawal requests this month as some investors tried to compensate for unrequited orders.

“We have a backlog from November and December,” Gray said in an interview with the Financial Times. “I will say the tone of the conversations with our advisers is much improved.”

Blackstone shares had tumbled when Breit limited withdrawals, but have recovered the losses, fuelled by a broad market rebound and a $4bn investment made by the University of California into the fund this month.

Blackstone has promised the UC a minimum annual return of 11.25 per cent for six years and is providing a $1bn backstop against those returns. If the returns fall short, Blackstone will forfeit Breit shares it owns to the UC until either the return threshold is met, or the $1bn is exhausted.

On Wednesday, the UC invested a further $500mn into Breit, and Blackstone contributed a further $125mn of its holdings in support of the return guarantees.

Had UC invested in BPP, rather than Breit, the inflows could have allowed some investors in BPP to redeem their holdings.

“We haven’t really heard much from our clients in the institutional world around BPP vis-à-vis Breit and the [UC],” said Gray when asked if investors had complained about the arrangement.

Blackstone sees the redemption requests at BPP as manageable but they suggest that liquidity risks will continue to impact fees and asset growth this year.

While Blackstone’s perpetual real estate funds fell about 1.5 per cent in value during the quarter, they gained by more than 10 per cent in 2022, fuelled by rising income from the properties.

Investors also continue to pour money into Blackstone, which raised more than $43bn for the quarter, propelling overall assets under management to a record $975bn.

In fourth-quarter results released on Thursday, Blackstone posted a sharp drop in profits as its fee-based earnings were hit by falling performance at Breit and worsening economic conditions.

Blackstone’s fee-related earnings, a proxy for the management fees it earns, plunged 42 per cent to $1.1bn. Its distributable earnings — a metric that is favoured by analysts as a proxy for overall cash flows — fell a similar amount to $1.3bn. On a per-share basis, the results either met or exceeded analyst forecasts polled by Bloomberg.

Blackstone shares gained more than 3 per cent in early trading.